Microsoft memo reveals more Xbox 360 exclusives to come in 2008

These are truly exciting times for us in the Interactive Entertainment Business.

Tonight Bill Gates and Robbie Bach will take the stage in Las Vegas to kick off the 2008 International Consumer Electronics Show (CES), where it will be announced that according to US NPD data through November, Xbox 360 is on track to register the biggest year in video game history.

While final sales numbers are still being collected, consumers in North America have spent over $3.5 billion dollars on Xbox 360 hardware, software and accessories. That’s $1 billion more than consumers spent on the Wii, and $2 billion more than the PS3. When December data is added, we expect Xbox 360 in 2007 to have generated more calendar year revenue than any other gaming platform ever, including PS2 at its peak.

Thank you all for your hard work. It’s because of your efforts this holiday and throughout the previous year that we’ve been able to drive this historic growth and sell over 17.7 million consoles worldwide. Our growth also continues online, where I’m proud to announce we have surpassed the 10 million member mark on Xbox LIVE, over six months ahead of schedule.

This growth, however, is not limited to just Microsoft and Xbox 360. The work that you do is also driving growth throughout our industry’s entire ecosystem. History has shown that the eventual winner of each console generation was the console that generated the most 3rd party revenue, and according to the most recent NPD data, Xbox 360 generated more 3rd party revenue in 2007 than Nintendo and Sony combined.

In 2007 the best games in our industry were on our platform, driving better-than-expected sales results for both first and third party games:

· “Halo 3” sold 8.1 million units worldwide and logged over 1.5 billion multiplayer matches since launch – that’s an average of 14 million matches a day

· “Mass Effect” sold 1.6 million units worldwide, after just five weeks on the market

· We expect at least seven different franchise titles to have sold in excess of one million units on Xbox 360, including “Halo 3,” “Mass Effect,” “Call of Duty 4: Modern Warfare,” “Guitar Hero III: Legends of Rock,” “BioShock,” “Assassin’s Creed” and “Madden NFL 08”

· “Scene It? Lights, Camera, Action” has already achieved its total FY08 revenue budget in just two months, helping establish a new franchise for the Xbox 360 that reaches out to a broad audience of social gamers

· Xbox 360 titles have received the highest average review scores this generation according to Metacritic, with the majority of cross-platform titles posting higher review scores on Xbox 360 than PS3

At CES Robbie will announce new content and partnerships that cement our position as the clear leader in delivering digital entertainment to the living room. Right now Xbox LIVE Marketplace features over 3,500 total hours of downloadable content and has hosted more than 380 million downloads, along with the largest library of on-demand, high definition content in the US. Now, Xbox LIVE Marketplace will add TV and movie content from the Disney-ABC Television Group and MGM Studios, bringing hits to our platform including TV shows Lost and Grey’s Anatomy and movies including Legally Blonde, Silence of the Lambs and Barbershop.

Robbie will also announce an exciting new partnership with BT to offer a first-of-its kind complete entertainment experience to all BT broadband customers by making Internet Protocol TV (IPTV) available through Xbox 360 through BT’s service BT Vision. This groundbreaking partnership will bring BT’s extensive library of on-demand content to the Xbox 360 and give consumers yet another option to get high definition content on our platform.

This year’s CES also proves to be exciting for Microsoft as a whole, with Bill Gates introducing a new wave of software-based services for TV, online, mobile phones and automobiles.

Moving Forward

Looking ahead, I believe we will close 2008 with Xbox 360 being the leader of this generation of consoles.

We’ve led our industry in developing and publishing great games on a platform that is equal parts hardware, software and services. We’ve led in driving growth for our partners at record rates. Now, it is our mission to fully deliver on our promise for Xbox 360 to be the console of choice for everyone in the family.

This year will be judged by which console will best capture core gamers and captivate the masses with both exciting new gaming content and access to great movie and TV content online. By this measurement, I feel confident that we are best positioned for success.

Games

We have the big blockbuster hits that everyone wanted to play. Of the top 20 best-selling titles in 2007 this generation, 13 were on Xbox 360, compared to seven on the Wii and zero on the PS3 according to NPD.

Games sell better on Xbox 360 because they play better on Xbox 360. From “Halo 3” to “Mass Effect” to “Bioshock,” Xbox 360 has the highest-rated and hottest games. In fact, Xbox 360 has 6 of the top 10 highest-ranked games this generation according to Metacritic, the world-wide authority in entertainment reviews.

When you look at the best-reviewed games, consumers will find that Xbox 360 has more than double the number of titles (81) with a Metacritic score of 80 or higher than PS3 (40), and six times more than the Wii (13).

In 2008 the hits will continue to come with exclusives including “Halo Wars,” “Too Human,” “Fable 2,” Alan Wake,” “Splinter Cell: Conviction,” and several exciting yet-to-be-announced titles. Xbox 360 will be home to the next versions of great franchises like Grand Theft Auto and Resident Evil, and we will continue to be the leading choice for sports fans, with the next editions of Madden and FIFA looking and playing better on our platform.

Consumers also get a more complete experience from their games on our platform, with many of 2007’s biggest hits coming back in 2008 with additional downloadable content through Xbox LIVE. It’s our ability to keep titles fresh for consumers with new content and new experiences that will keep Xbox 360 as the console of choice for multi-platform titles. In fact, Xbox 360 will be home to the complete version of “Grand Theft Auto IV,” with two exclusive episodes available only through Xbox LIVE.

This year we will continue to make great strides towards improving our brand appeal to consumers interested in more physical game play. With titles like “Guitar Hero III: Legends of Rock,” Rock Band” and “Scene It: Lights, Camera, Action” we’re opening people’s minds to new kinds of experiences that can be found on Xbox 360.

As the year progresses, we’ll offer even more experiences with a lineup that will appeal to a broader audience than ever with new, imaginative content.

Xbox LIVE

This holiday, Xbox LIVE blew past expectations and eclipsed the 10 million member mark, over six months before our stated goal of July 2008 announced at E3 last year.

I want to congratulate everyone who has worked to build this incredible service over the years. You have changed gaming forever by delivering to consumers a unified gaming and entertainment network that has become a true cultural phenomenon. Since its launch, Xbox LIVE has hosted over 4.9 billion hours on the network – that’s equal to 204 million days or more than 560,000 years of gaming.

With Xbox LIVE we’ve shown that gaming is better when it’s shared with others, and with a lineup of games, movie and TV content that’s growing by the day, we’re in position to continue to drive online innovation for years to come.

At 10 million members Xbox LIVE is by far the largest social network connected to the TV, and in the months and years to come we’ll look offer even more ways to connect and share experiences with your friends.

Movie and TV Content

We’ll begin 2008 by adding even more high definition content to the video store on Xbox LIVE, which is already the largest on-demand library of HD content on the market.

Under our new agreement with the Disney-ABC Television Group, Xbox LIVE members in the US will get access to more than 500 hours of content from the ABC Television Network, ABC Family, ABC News, Disney Channel and Toon Disney, including hits like Lost, Grey’s Anatomy, Ugly Betty and Desperate Housewives. Past and current seasons will be available on-demand, with new episodes hitting the service the day after they air on television.

With new content from MGM Studios, the video store will be home to legendary hits including Rocky and Terminator, United Artists, an MGM sister company, will also make select content available.

As the year progresses, we will look to add even more TV and movie content to further solidify our lead as the preeminent destination in the living room for on-demand high definition entertainment. It took many long hours and a team of extremely talented people to build this service that is now the model for not just for gaming, but for the entertainment space as a whole.

Games for Windows

I am especially excited to continue the progress we have made with Games for Windows. In our first year, we’ve delivered to consumers a recognizable brand that communicates quality, fun, consistency and safety, growing from two titles in 2006 to over 60 at CES 2008. Games for Windows also played a crucial role in the launch of Windows Vista with great titles that take advantage of the new features Windows Vista offers for gamers.

We’ve brought many of the best games to our platform, and laid the foundation for great things in the coming years. In November alone, Games for Windows titles accounted for over 20% of all PC game sales at retail in the US.

In 2008, we will focus on expanding our brand presence even more, bringing more publishers and titles into Games for Windows, and building Games for Windows – LIVE into the best gaming service for Windows gamers worldwide.

IEB All Hands

I’m excited to be able to bring us all together on January 23rd for our first All Hands meeting of the year. With our third holiday season just wrapping up and our fiscal year more than half over, we have quite a bit to talk about. Joining us will be members of my executive team for a conversation about where we are and where we’re headed as an organization.

Plus, we’ll have a special guest … Robbie Bach! Robbie will present to us on what’s happening in the Entertainment and Devices Division as a whole and will take any questions you may have. Look for more details to arrive later this week.

I want to close by thanking all of you for everything that you do. You are driving the innovation that is driving growth for both Microsoft and the interactive entertainment industry.

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